Energy and Natural Resources Market Radar (July 22, 2013)

July 21, 2013

3 minute read

Energy and Natural Resources Market

WTI crude oil futures gained 2.3 percent and closed at a 16-month high price of $108.42 after weekly data showed that U.S. refineries used the most crude oil in almost eight years last week. This drained supplies for the third straight time, even as domestic production rose to the highest level since 1990 and imports increased. The recent surge in WTI futures has closed the discount spread to Brent futures, as the two trade at parity after having traded as wide as $25 per barrel in the fourth quarter of 2012.
Amidst a sea of negative Chinese data and rhetoric, power consumption grew quicker in June. National Electricity Administration data showed it increased by 6 percent year-over-year, up from 5 percent in May, and from 4 percent in June 2012.

Glencore Xstrata Plc said it will halt production of iron ore in Australia next month, citing deteriorating market conditions and ending a two-year experiment to gain a toehold in the sector.
Crude-steel production in China fell to a four-month low in June after prices plunged, Bloomberg reports citing data from the National Bureau of Statistics. Steel output was 64.7 million metric tons last month, the lowest since February, according to the report. Production rose 4.6 percent in June from a year ago, the bureau said.
Newcrest Mining may cut more staff at its Telfer mine after about 90 employees were dismissed this week amid a slump in gold prices. “Approximately 90 employees have been made redundant,” Jason Mills, a spokesman for the company said. “Some further workforce reductions may result over the next six months.” The company is continuing to review costs at all of its six operating mines in Australia, Papua New Guinea and the Ivory Coast, Mills said.

Argentina will offer energy companies incentives if they invest $1 billion or more over a five-year period, as the country struggles to lift output and pare fuel imports a year after seizing a majority stake at YPF from Spain’s Repsol. Companies that meet the requirements will be able to sell 20 percent of production in international markets without paying export taxes, and will be able to keep export revenue from 20 percent of output outside of Argentina, according to a decree published in the government’s official gazette. They will also be able to sell oil and natural gas slated for export in the domestic market at international prices if the local supply is insufficient, the government said.
Gold imports by India may rise to more than 900 tons compared to 860 tons last year, Marcus Grubb, MD of investment research at the World Gold Council, said in an interview. Sales surged in the second quarter after prices fell into a bear market in April. Grubb said that China imports are to top 1,000 tons in 2013 versus 817 tons in 2012, adding that the “Gold prices may be near the bottom.”

Metals analysts at Macquarie highlighted that the nickel market has been in large surplus so far in 2013, and without significant production cuts, will remain in large surplus in 2014. In their view, the market is looking to China for further cuts in nickel pig iron production, but this is not enough to rebalance the market and cuts outside China may well be a catalyst for a short-covering rally.